Tax Planning in 2025 – Finger Financial Five #195

We can’t do everything all at once, but we can take the next best step.

Tax planning ‘steps’ for 2025

Another year is upon us already, and with it comes a few important changes. 

1. Contribution Limits for Retirement Accounts

For 2025, contribution limits to retirement accounts will increase a bit.

• 401(k), 403(b), 457 plans:
  • Contributions for those under 50 are now: $23,500
  • Total contributions for those 50-59 are: $31,000
  • Special “super catch-up” contributions totaling $34,750 for those aged 60-63.
• Health Savings Accounts (HSAs):
  • For individuals: $4,300
  • For families: $8,550
  • Additional $1,000 catch-up for those 55+.
• IRA Contributions: No changes from 2024 – ($7,000 plus $1,000 catch-up for those over 50.)

Potential Action tips: It is always wise to consider the options available to you each year. It’s important to attempt to find the right the balance between tax efficiency, other accounts, cash cushion goals, and regular spending goals. Regardless of the accounts you use, it’s beneficial to set up automatic monthly contributions to keep your long-term savings plan on autopilot. The less you have to think about, the more consistent you are likely to be.

2. Tax Brackets

The 7 brackets will stay the same from a percentage basis. But the dollar ranges that fit into each bracket will update a bit. For instance: Earning $626,350 or more in 2025 as a single filer puts you in the top bracket. (Up from $609,350 in 2024).

Potential action tips:

• Capital gains opportunities: If your income stays below the 0% capital gains threshold ($48,350 for singles, $96,700 for couples). These thresholds are AFTER your standard deduction, so your taxable income could be as high as $120,000 MFJ and still be in the 0% bracket. It is better to pay 0% gains, than it is to defer taxes. Consider realizing gains on investments without incurring taxes.
• Roth conversions: The higher income thresholds also provide a greater range of potential opportunity to convert traditional IRAs to Roth IRAs.

3. Qualified Charitable Distribution (QCD) Limit

For retirees 70.5 and older, the amount that can be donated tax-free to charity via a QCD will rise to $108,000 (up from $105,000 in 2024).

Potential Action tip: If you’re charitably inclined, QCDs are an excellent way to donate directly from your IRA without triggering income taxes. It can also satisfy required minimum distributions (RMDs) if you’re 73 or older.

4. Estate and Gift Tax Changes

2025 will see increases in both the estate and gift tax thresholds, creating more opportunities for tax-efficient wealth transfer.

• Estate Tax Exemption: The amount exempt from estate tax will rise to $13.99 million per person
• Gift Tax Exclusion: The annual exclusion increases to $19,000 per recipient, or $38,000 for couples.

Potential Action tip: Keep your ear out to see if this stays in effect or not (Congress and the presidential administration will determine if the rule here gets extended or if it expires.) Regardless of the estate tax exemption, you can take advantage of the yearly gift tax exclusion that does NOT count towards the estate tax total.

5. Prescription Drug Costs

Medicare Part D recipients will see significant relief in 2025, with annual out-of-pocket costs capped at $2,000. Additionally, a new payment program allows seniors to spread their prescription costs throughout the year.

This list isn’t covering every single change, but these ones we mentioned are good ones to pay attention to. These updates we send out are with the goal of helping you save more, reduce your tax burden, and prepare for future needs. There is never a better time than the present to review your strategy and consider potential opportunities.